Glu Mobile's (GLUU) CEO Nick Earl On Q4 2016 Results - Earnings Call Transcript

| About: Glu Mobile (GLUU)
This article is now exclusive for PRO subscribers.

Glu Mobile Inc. (NASDAQ:GLUU) Q4 2016 Earnings Conference Call February 8, 2017 4:30 PM ET


Greg Cannon - VP, Finance and IR

Nick Earl - President and CEO

Eric Ludwig - COO and CFO


Mike Hickey - Benchmark


Good day, ladies and gentlemen, and welcome to the Q4 2016 Glu Mobile Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference call is being recorded.

I would now like to introduce your host for today's conference Mr. Greg Cannon, Vice President of Finance and Investor Relations. Sir, please begin.

Greg Cannon

Good afternoon, everyone and thank you for joining us on the Glu Mobile's fourth quarter 2016 financial results conference call. This is Greg Cannon, VP of Finance and Investor Relations from Glu Mobile. On the call today we have President and CEO, Nick Earl; and COO and CFO, Eric Ludwig.

During the course of this call, we will make forward-looking statements regarding future events and the future financial performance of the company. Any forward-looking statements that we may make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events. We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and during this conference call. These risk factors are described more fully in our documents filed with the SEC, specifically the most recent reports on Form 10-K and Form 10-Q.

During this call we will present both GAAP and non-GAAP financial measures. The non-GAAP measures are not intended to be considered in isolation from, a substitute for or superior to our GAAP results and we encourage investors to consider all measures before making an investment decision. For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to the supplemental presentation accompanying today's earnings call that can be accessed via our Investor website at

Finally, in order to comply with recently issued SEC guidance on the use of non-GAAP financial measures, we have changed the way we present and discuss certain non-GAAP financial measures. Specifically we will no longer adjust for the change in deferred revenue when arriving on our non-GAAP measures. However, we will provide the change in deferred revenue -- deferred cost of revenue information so that investors can calculate our non-GAAP results based on the same methodology we have used in prior quarters.

With that I will turn the call over to Nick. Nick?

Nick Earl

Thanks, Greg. Thank you all for joining our earnings call. I would like to welcome everyone as we discuss the prior quarter results for my first three months as CEO and the opportunities ahead in 2017 and beyond. By now you've seen the fourth quarter results, we significantly outperformed our bookings guidance, primarily due to better than anticipated performance from Crowdstar and our evergreen titles as well as Apple reporting 14 weeks of revenue in the quarter rather than its book of '13 [ph].

Eric will walk you through the financials in more detail in a few minutes but first I would like to spend some time discussing observations following my first 100 days as CEO. I spent most of my time focused on creating refined direction with our leadership team, rolling it out to our employees and making the necessary structural changes, in order to move our company forward.

And we're also spending a lot of time identifying and hiring proven leaders to attribute this new strategy. Our mission at Glu is to create top 10 grossing games and apps that stack revenues year-over-year. We've built a three pronged strategy focused on, hiring proven creative leaders, who will build Blue Ocean platforms in highly creative environments. I'll now go into detail in each of these components.

Glu's talent model is to attract the industry's finest and arm them with world class infrastructure, tools, funding and the support to creative innovative and polished products. We provide all of this while eliminating the risk of going it alone.

Under the guidance of these creative leaders, I believe we will deliver best-in-class entertainment products. I am extremely pleased to say that two weeks ago we added to our current creative leader group, by hiring a perfect example of the strong new creative leader, I'll talk about shortly.

While we will not be mandating specific genres of categories, we will ask that each new title is what we call a platform game, meaning it generates repeatable, predictable revenue that stacks year-over-year. Covet Fashion, from our recent acquisition of Crowdstar is a good example of this, as it is growing in annual bookings each year, since its launch in 2013.

Another one is our Tap Sports Baseball franchise, which is growing annual bookings in each of its three years. And we believe 2017 will continue that trend, with the inclusion of the MLB license, the delivery of higher quality graphics and a much deeper [indiscernible].

We will be consolidating our games to fewer locations, including a planned mega studio in San Francisco. We hope to move into our new San Francisco facility by the end of the year. The idea is to create a state-of-the-art facility that is optimal for the creation of innovative designs and the highest quality games. The way I look at it is that while we cannot guarantee shipping hits, we absolutely can provide the optimal environment for world-class output.

Let's now talk about the addition of our newest creative leader, Mike Olsen to the team. The future of Glu will be built around the best creative leaders we can possibly find and we've certainly got a special one in Mike. He is a 20 year veteran who helped developed and launch over 20 games during his career. He was a Creative Director in Tiger Woods PGA Golf from 2001 to 2004. During his career he took a simulation of golf and turned it into an addictive video game, with features like game phase, the analog swing and a deep RPG (inaudible) game.

Most recently Mike has been leading the Capital Games studio, where he and his team developed and ramped Star Wars Galaxy of Heroes an enormously successful mobile game for Electronic Arts, to one that stood [ph] as high as number of six top grosser in US iPhone. Mike is putting together a small team to start prototyping innovative and high quality games and we really look forward to what he and the team will create and launch here at Glu.

I am also in active discussion with several other creative leader candidates about the new opportunity and model here at Glu. I hope to announce the addition of more proven and talented leaders over the coming years. These new creative leaders will be in investment mode for 2017, that will -- that I believe will tap [ph] in a big way. I anticipate their first titles is coming in 2018.

Moving on to product, we're thinking about our slate in two category, evergreens and platform. Evergreens are existing games with decent GIU base where our teams are either reducing the revenue decay or hopefully increasing run rate.

Following is an update in our key evergreen games. Deer Hunter 16, which has been rebranded Deer Hunter 17 has recently launched two new major updates that have significantly increased its revenue run rate. We're bullish on the franchise's return to growth as new content modes were introduced by the recent addition of underwater hunting.

Kim Kardashian, Hollywood saw a nice bump in December due to the big fix [indiscernible] update. We recently integrated subscriptions and intend to integrate fashion learning [ph] tournaments of the next few months and are hoping for continued improvement as a result.

The DASH franchise, Cooking Dash and Gordon Ramsay Dash continue to deliver consistent revenues. The teams will be releasing substantial 2.0 updates this year and we expect improvements in key KPIs to follow. Racing Rivals was just moved from our Long Beach Studio to a very talented group led by former EA and Zynga executive, Travis Boatman. Given their experience in running live games like Mad and Mobile, we believe they have the ability to bring the game back to stronger revenue levels.

Next I’ll discuss our current and potential plot for games, which differ from evergreens in that they still have year-over-year growth. Last November we launched Design Home from Crowdstar to complement Covet Fashion. We are extremely pleased with the performance to-date given the better than expected booking since launch. Design Home was built on the Covet engine and architected via platform like Covet and it's off to a good start.

We have a very motivated and talented leadership team in place in our studio there, and are very excited about the addition of this group in these platform games. Glu’s next major launch will be MLB Tap Sports Baseball 2017, which we expect to be available worldwide at the beginning of the MLB season.

Have been grown each year since its launched in 2014 Tap Sports Baseball is one of our two established platform franchises. This year’s game has stronger graphics and a much deeper economy and middle [ph] layer, which we believe should lead us to stronger LTV. And for the first time in franchisees' history we have the MLB license, which we believe should lower our CPIs as we're adding team names and jerseys. This new version is currently in beta in Canada right now and we are encouraged by the early results and its potential to achieve a high top grossing ranking.

The other major release in 2017 is our Taylor Swift App, our Toronto studio where we develop and run Kim Kardashian Hollywood has been working closely with Taylor Swift and her team. We are excited about the potential of redefining titles built around celebrities based the Zynga platform experience, much more on this title on our next call.

Moving forward all of our creative leaders will be focused on developing an operating platform games, as we believe there will be a much greater chance to deliver hits this way. As mentioned we are confident that creating the optimal environment will also help us launch hits. A part of this is establishing a culture across the entire company, but we all think ourselves as game makers regardless of one’s role.

Everything we do, every single day should and will contribute either directly or indirectly to making highly polished innovative fun experiences. We currently have five world class creative leaders and I do not view them as working for me, I view myself as working for them. And I can say the entire executive team here feels the same.

Anything we can do to help them succeed will in turn help the company. This is a new philosophy of Glu, and one that we strongly believe will help transform our results. I’ll now pass over to Eric to cover our financials and come back again for final comment. Thanks.

Eric Ludwig

Great, thank you Nick. Overall the fourth quarter results were significantly ahead of our expectation. I will first summarize our GAAP financial results for the fourth quarter and full year 2016. As Greg mentioned we will not go through the adjusted results in detail. Specifically we'll not discuss adjusted gross margin or adjusted EBITDA in our actual results or guidance, due to the recently issued guidance from the SEC regarding disclosure of non-GAAP financial measures.

We have provided the changes in deferred revenue and deferred cost of revenue and the non-GAAP operating expense total. This will allow investors, if they wish to do so to calculate non-GAAP results based on the same methodology, we have used in the prior quarters.

I’ll conclude by providing guidance for the first quarter and full year 2017. The following are our GAAP results for the fourth quarter of 2016. GAAP revenue was $46.3 million and it reflects a small contribution from Crowdstar due to deferring their revenue over seven months versus Glu’s three to four months deferral.

Our five largest titles during the fourth quarter represented 70% GAAP revenue. The fourth quarter's 63% of total -- of total GAAP revenue came from titles where we paid a royalty of some kind. GAAP gross margin was 56%. Total GAAP operating expenses were $43.3 million and GAAP loss was $17.2 million or $0.13 per basic share.

Now turning to our Q4 bookings, bookings were $57.8 million and well above our guidance range of $46 million to $48 million. This was primarily due to the better than expected performance in Design Home, which generated $4 million for the two month period we owned Crowdstar during the quarter.

We previously expected minimal contribution in the fourth quarter from this title as we had only acquired Crowdstar the day before the November earnings call. We also benefited from an additional week of in-app purchase revenue from the Apple platform, which added $2.7 million of bookings in Q4. Every six or so years Apple has one calendar quarter where there are 14 weeks of revenue versus the standard 13 weeks and this change occurred this quarter after we issued our guidance.

Lastly our evergreen titles outperformed by $3.3 million versus our guidance due to the strength of updates and seasonality. Our five largest titles during the fourth quarter represented 62% of total bookings, down from 74% last quarter. This decline in contribution from the top five titles was due to an increase in the number of top performing titles with the addition of Crowdstar.

In terms of bookings, the largest title during the quarter was Covet Fashion generating $8 million for two months following our acquisition of Crowdstar which was in line with our expectation. Cooking Dash was $7.6 million, while Gordon Ramsay Dash bookings were $7 million. Kim Kardashian Hollywood generated $6.9 million and Tap Sports Baseball bookings were $6.5 million. In the fourth quarter 50% of total bookings came from titles where we paid a royalty. This is down from 67% last quarter due to the original IP nature of Covet Fashion and Design Home.

In terms of cost of bookings adjusted platform commissions were $14.5 million, adjusted royalties were $5 million and hosting costs were $1.4 million. Total adjusted operating expenses of $38.8 million in the fourth quarter were favorable to the high-end of our guidance range. We recorded a $2 million negative expense in R&D during the fourth quarter due to a lower than anticipated full year bonus payment. Total adjusted operating expenses included $11.3 million for UA for 19.5% of bookings which is up from 14.6% in the third quarter due to the acquisition of Crowdstar.

As we mentioned in the last earnings calls Crowdstar has historically spent 35% to 40% of bookings on UA while Glu typically incurs 15% to 20% of bookings. Design Homes' projected six months lifetime value per user is currently higher than its costs for install and we are experiencing solid paid to organic download ratio. As such I would anticipate spending at these higher levels for Crowdstar during at least the first half of 2017. Once we have a better view on the revenue curve for Design Home beyond the 108 days we will then determine whether to continue spending at f these elevated levels in the second half of the year.

Let me take a moment to walk you through some of our full year results. GAAP revenue was $200.6 million. Our top five titles were 64% of GAAP revenue, and in 2016 60% of total GAAP revenue came from titles where we paid a royalty. Bookings for the full year 2016 were $214 million and our five largest titles represented 62% of total bookings. Our largest title was Cooking Dash, generating $33.5 million followed by Kim Kardashian Hollywood at $33.1 million. Tap Sports Baseball bookings were $27 million while Racing Rivals generated $23.2 million. Gordon Ramsay Dash bookings were $15.5 million from the approximately six months of its life.

The strong full year performance of our top five titles during 2016 is a direct result of the ongoing constant updates and live operations and events and tournaments of these evergreen titles. Total adjusted operating expenses were $146 million during 2016, including $37.4 million for user acquisition or 17.5% of bookings.

Now turning to balance sheet at December 31st, our cash and equivalents totaled a $102.1 million, a decrease of $45.4 million from September. The decline during the fourth quarter was driven by the $45.5 million acquisition of Crowdstar. Our ending December cash balance was higher than our prior guidance of $80 million due to amendments to certain license arrangements that pushed the timing of payments from Q4 2016 into 2017.

In 2017 we expect to pay $26.4 million in royalty advances from licenses signed in 2015 and 2016 including the amount pushed from the fourth quarter into 2017. I would just like to take a moment to talk about the reduction in headcount and offsetting reinvestment in [indiscernible] leaders and our teams. As previously disclosed we are eliminating up to a 140 positions in Bellevue and Long Beach given the underperformance of these studios.

To support our long term strategy of investing in creative leaders with platform title opportunities we will be adding headcount in the San Francisco Bay area and Hyderabad India locations. As a result we expect that overall research and development expenses will be at approximately the same levels by Q3 2017 as they were in the fourth quarter 2016, after adding back in Q4, 2016, the $2 million of negative expense [ph].

As part of this restructuring, we transitioned game developments and live operations for our Racing Rivals titles to Covet in its base in Southern California. As Nick mentioned the Covet team consists of mobile gaming industry and veterans from Electronic Arts, where they helped turn the mobile version of Mad in Football into a top 10 grossing title.

We are paying Covet a quarterly dev fee plus a quarterly profit share. Covet is highly accented to grow revenue from current level, as Glu recoups the Delphi Car license fee, user acquisition and hosting costs before sharing any of the profits. The profit shared to Covet starts an annual bookings run rate, above what our entire 2016 actual bookings were for Racing Rivals.

And before turning to guidance, I want to provide an update on our recent asset purchase of QuizUp and Plain Vanilla. We made our investment in Plain Vanilla last year, because we believe in the highly social QuizUp app and the player versus player platform.

We took over QuizUp at the end of December and our total net investment today is $6.3 million. QuizUp currently has approximately 400,000 daily active users and we are already operating the app at a breakeven from day one level.

Now turning to guidance. At the beginning of each year, our full year revenue guidance comprises two buckets of revenue, revenue from titles that are already live and revenue from new unreleased titles. For the full year 2017, we currently expect our total bookings to be in the range of $215 million to $225 million.

We believe that we have improved visibility into our 2017 guidance, given only one new title, Taylor Swift is not a proven platform. This guidance includes revenue from our catalog, including Deer Hunter, Cooking Dash, Gordon Ramsay Dash and Kim Kardashian Hollywood among others, which are primarily single player evergreen titles. We believe they will be meaningful contributors in 2017 and they could grow from current run rate levels but we expect that in the aggregates the 2017 revenue will be lower than 2016.

Covet Fashion is a true platform title and Design Home is a build-of off the same tech platform and we believe it could have platform property. We expect Covet Fashion and Design Home combined to contribute approximately $60 million to $70 million during 2017, essentially flat at the high end of guidance, based on combined November and December results. We are forecasting Racing Rivals to be down year-over-year due to the Long Beach closure and handover to Covet.

Our guidance for 2017 is less reliant on new titles than prior years. MLB Tap Sports Baseball 2017 is a platform title with the MLB license, higher quality graphics and a deeper [indiscernible] game economy. We'll be launching this title at the beginning of the MLB season.

Our second new launch will be -- the title based on Taylor Swift. Our guidance for the Taylor Swift title has been modeled conservatively, given both the timing of the launch as well as [indiscernible] around celebrity titles. We expect that all titles we green light from our new creative leaders on a go-forward basis, will be platforms with revenues that we believe can grow on a year-over-year basis. The first such title we'll launch in 2018.

Our overall guidance philosophy for 2017 and beyond is to remain thoughtful regarding contributions from new titles as well as from titles from limited social functionality. To the extent we have hit titles in 2017, that would be an outperformance on our evergreen titles, those could allow us to exceed our guidance. For 2017 our adjusted platform commissions are expected to be in a range $58 million to $60.8 million. Adjusted royalties are expected to be in the range of $17.2 [ph] million to $18 [ph] million and hosting cost expected in the range of $5.4 million to $5.6 million.

In regard to adjusted operating expenses, they're expected to be in the range of $160.1 million to $162.3 million. This is up from $146.1 million in 2016 due to a number of factors in 2017, some of which are recurring in 2018 and beyond and others that are 2017 one-time charges.

First, this includes the addition of Crowdstar for all of 2017 versus only two months in the 2015 OpEx figures. Crowdstar OpEx excluding UA in November plus December was approximately $3.3 million. Annualized for 2017, this equals approximately $20 million.

As I previously mentioned Crowdstar UA spend is expected to be higher in the first half of 2017 then historical levels. We expect this to result in average UA as a percent of total bookings to be approximately 18.5% in full year 2017, up from 17.5% in 2016.

Additionally Crowdstar employees can earn up to $4.2 million performance bonuses for calendar 2017 to the extent they achieve certain bookings in the titles. This is part of our extensive package repayment scheme. This level of incentive is one-time in nature for 2017 and will not recur in 2018 and beyond.

Additionally, our current San Francisco office lease of 29,000 square feet expires in the first quarter of 2018 and the rental rate is below the current market rate. We anticipate starting a new lease in Q1 2017 and moving in by the fourth quarter of 2017 in a space of approximately 55,000 square feet. Due to lease accounting rules, we'll be straight lining the new building once we attain possession and thus we will have double rents and the rents on our larger footprint at a higher market rate than what we have today.

We also expect to be adding new creative leaders, similar to Mike Olsen that we've announced a few weeks ago, as part of our focused on hiring industry leaders in order to deliver best in class in our team of products.

Lastly, all of these OpEx conditions will be partially offset by the $14 million annualized OpEx reduction we announced in January. As a result, we expect this year to be one of investment for long term with a modest increased on losses over on a year-over-year basis. The super majority of that loss will be in the first half of 2017.

As a reminder, our cost reallocation initiative will result in Glu incurring pretax charges in the range of $3.2 million to $5.4 million given it's severance and lease termination cost, the majority of it to be recorded during the first quarter of 2017. Additionally, we expect to incur $2.7 million in non-recurring transitional cost related to integration of Crowdstar to the second quarter of 2017.

Turning to guidance for the first quarter of 2017, we currently expect our total bookings in the range of $53 million to $55 million. This guidance reflects a full quarter's contribution for Crowdstar. minimal contribution from MLB Baseball on it exits -- it exits beta at a very end of the quarter, as well as modest declines in our catalog cycles.

I would point that the fourth quarter had $2.7 million extra Apple revenue, as well as it is the seasonally strongest quarter while the fourth quarter, from our first quarter is seasonally the weakest. However adjusted class passing commissions are expected to be in the range of $13.6 million to $14 million, adjusted royalties are expected $3.7 million to $3.9 million and hosting cost are expected to be $1.5 million.

Our adjusted OpEx for the first quarter is expected to be $43.6 million to $44 million which assumes variable marketing as a percentage of bookings to be approximately 20.4%. As a result, we expect our losses to increase compared to the fourth quarter.

Finally we expect to end 2017 with at least $50 million in cash. This includes the operating loss for the year with the increased OpEx, restructuring of [indiscernible], 5.3 million of fixed asset purchases including our office build out and $26 million in minimum guarantees for licenses signed prior to the start of 2017.

While 2016 was a challenging year for Glu, we believe that the changes we are making, along with our investment in creative leaders will result in a more predictable and sustainable profit operations. 2017 is a transition and investment year, and we believe the moves we are making will pay-off in 2018.

We expect these platform title investments to provide more predictability of revenue and sustain growth once they launch. We are mindful of bring prudent and ensuring we have efficient capital reserves and not injecting unnecessary risk to the company. At all times we are committed to manage the business to ensure our net cash balance remains more than adequate for our long term investment needs.

So in summary, we are very confident the actions we are taking including the execution of our corporate strategy, will position Glu to resume high quality and profitable growth. With that we'll open the call for questions. Operator?

Question-and-Answer Session


Thank you. [Operator Instructions] Our first question is from Michael Graham of Canaccord. Your line is open.

Unidentified Analyst

Hi thanks. It’s Austin on for Mike. Two questions related to the [indiscernible] partnership. Just first is just practically speaking how should that look -- incorporate into the model, how's revenue and the cost side book, consolidated into your numbers? And second is this strategy that we should expect going forward for upper evergreen titles? Thanks.

Eric Ludwig

Yeah. Thanks Austin. I will take the first part and Nick will follow-up the last part. So we'll be consolidating [indiscernible] results, which is basically the fee that we're paying to them, we'll be booking topline revenue and cost of sales. And so there will be a full [indiscernible] for Racing Rivals with a new management team so to speak operating the title. And then Nick in regards the strategy, well this is the ongoing strategy.

Nick Earl

Yeah hi Austin. So this is definitely not a strategy that we won’t leave going forward, at least we don’t intend. We just found a great team that is perfectly suited to take this game not only in terms of their background and their capabilities but literally in terms of their location. They are very close to where the Long Beach studio was and we felt this was a great title to give to them to take forward.

Really the longer terms we will be really focused on our mega studios, our big studios, San Francisco being kind of first in line there to build all of our future partnering games and all of the other evergreen games we have, all have teams and all have really solid studios. So we really don’t need to look for other teams.

Unidentified Analyst



Thank you. Our next question is from [indiscernible] of Mizuho. Your line is open.

Unidentified Analyst

Hi, just based on your comments, can we assume that Taylor Swift is definitely not coming out until the second half of the year, and then I just want to get some more details on the prototyping process that you’re going through, like what’s the cadence of I guess the releases will be for prototyping and can you think of a rough timeframe of assuming that you will, what’s that process like, how long that is? And then Kim Kardashian Home Designing fashion, can you provide some more color on the player basis and how much overlap there is among two audiences, it seems like they both maybe doing well?

Nick Earl

Hi, I think I’ll try to take a stab at all of these and Eric can chime in. We can’t give the data of Taylor Swift right now. We’re still working with the team to identify the exact date. So stay tune but we are definitely excited about the reorientation of how we’re looking at celebrity games and how we’re thinking about celebrity games as a platform.

This is going to be a very different look and feel to Kim and the other celebrity games we’ve done in the past. We’re really going to innovate here. We just can’t talk about the day yet so please, please have patience and we will announce as soon as we can.

In terms of the prototyping process I mean we are really excited about it. I’ve done in the past since typically when I was running EA Mobile and had some real legit hits come out of that process.

Basically each of our creative leaders has the opportunity to start prototyping with small teams, one, two, three maybe with four ideas and when we get a sense of that we’ve got something exciting we kind of get a sniff or something that looks to be that it could be a hit we will start to splurge more resources on that particular team.

This is one of the reasons why we are moving to more of a mega studio so that we can in a more fashionable manner move our people around. And also it means that we have to kill an idea or kill a game, we don’t have to kill an entire studio the way we’ve done in the past. So we think this is a sort of logistically a much better environment in which to create hits.

In terms of the numbers I would say that we will have roughly six maybe seven rate, it’s a big ideas, prototyping this across the spot of creative leaders, some are already working on games for example, our GM and creative leader in Toronto has obviously got his plate full with Kim and Taylor. There are six plus games we will be prototyping and my guest right now is that we will green light to sort of two and four games this year that will go into full development at some point during the course of the year and then we will release probably in 2018.

I think the last you had was on Home Design and Covet Fashion, how the audiences have intersect? They are pretty close. We found that Covet Fashion tends to be more of female than Home Design. Home Design is definitely a greater mix of males, but still majority of females. The A grades are roughly the same, the loss and profits are same. That’s a pretty wide-wide range of demographics that engage with both games.

Unidentified Analyst

Okay, great, thank you very much.

Nick Earl

Thank you.


[Operator Instructions] Our next question is from Darren Aftahi [ph] of ROTH Capital. Your line is open.

Nick Earl

You there?

Eric Ludwig

Darren, are you there?

Unidentified Analyst


Nick Earl

We got you.

Unidentified Analyst

Hi, this is Dillon, in for Darren at ROTH. Thanks for taking my call. I was wondering, if you guys could provide some more insight as to why Q1 bookings are going to be down next quarter versus Q4, especially now that C star is now fully innovated?

Nick Earl

Yeah. Sure, Dillon. So, there is a couple of things I mentioned in my prepared remarks. First we will have a full quarter for Crowdstar. So that will be an increase. Secondly however, Q4 is seasonally the highest quarter and Q1 is seasonally the lowest quarters, you have that offsetting declines naturally of the highest and lowest quarter.

Thirdly we also had an extra week of revenue Apple contributed $2.7 million in Q4 that's not recurring. And then lastly, we had some really big evergreen events and tournaments around some of our titles in the November, December timeframe that will not recur in Q1. We did those events and tournaments into the large quarter and it had an outsized impact into Q4 and it will not be a recurring item there.

So we always expect to see Q1 down and there was kind of some additional items that were into this causing this guidance to come down.

Unidentified Analyst

Thank you.


Thanks. Your next question is from Mike Hickey of Benchmark. Your line is open, sir.

Mike Hickey

Hey guys, thanks for taking my questions, appreciate it. First question, curious about the celebrity genre or obviously Kim Kardashian was a huge success. Of course that -- it's been sort of mixed to pretty underperforming especially thinking [indiscernible], their observation. So, I am sort of wondering how to build in the Taylor Swift, what you've learnt through the process, what it takes sort of resets on some good numbers here from the celebrity genre? I am also curious as, you're using sort of a [indiscernible] engine like [indiscernible] originally, maybe you're taking a new approach? Thanks.

Nick Earl

Yeah. Hi, Mike, this is Nick. I'll take those and Eric can chime in. You're exactly right. We had a great start with Kim, the follow-up has not been great. And it's really forced us to take a very hard look at what we want to do with celebrities going forward. As we went in and worked with Taylor Swift and her team, we cooked up and sort of innovated on what the structure and really the design of that experience is going to be and came up with something very, very innovative and very different, specifically because, we've just not seen the follow-on growth from Kim.

So that's the main that is the main driver why we are doing something innovative. And we're really excited to talk about it, when we can. It's a little bit early right now. I will tell you that it is on a new engine and given that sort of the structural design, it really has to be in a new engine. So, this is going to have a very different look, a very different feel and like I said, we're excited about its potential.

We just don't know what the celebrity future is so, we're being sort of so thoughtful about, how we kind of built into our numbers. But I could tell you, we've got a very talented team and we've got a very, very strong partnership with Taylor Swift who are very, very capable growth in the sort of the digital world so, and that's proven to be a good partnership.

Eric Ludwig

And as well Mike, I said in prepared remarks that we've taken a pretty low view in terms of our guidance from the Taylor side opportunity. One, the timing of the launch which we did not talk about. Secondly, just given our legacy and history of some challenging times in 2016 around celebrities we've been pretty conservative in our guidance around Taylor.

Mike Hickey

Okay. Thanks, guys. One more. The…

Nick Earl


Mike Hickey

Curious Nick, your communication with Tencent, how that's been, I guess Ben is now taking a position on the Board, but originally I think there was some hope that there might be strategic value in maybe opening up some of the Asia market to -- at the time some of your celebrity IP and I think that ultimately worked in reverse and not very well. But if you could sort of update us on what's happening with that relationship and how do you expect to leverage in the future?

Eric Ludwig

Yeah. You're spot on Mike, the kind of the reality has turned to be a little different, in terms of -- we've really taken one of their game, tried to make it work for the west, which has not really worked out. I will say that there has been partnership with them and a s strategic one, in terms of learning, how to run LiveOps and this is really -- our learning from them has really sort of driven our evergreen category of games, and how we sort of think about the future of games in platforms.

I took the large group over last year, at the end of year and we spent a week with Tencent at their headquarters in Shenzhen. And they -- I hate to mix metaphors here but they really opened up their [indiscernible] and really showed us a lot about, how to work on live games. They're just so sophisticated.

So, I think that has been the most strategic and important part of our relationship. And I think it's going to pay off enormous dividend for the future, in terms of how we run our evergreen, and how we think about platform games and run live service in the platform games.

With regards to the Board yeah, Ben is now sitting on the Board. We could not be more excited to have him as part of our board. I feel like I am building a good relationship with him. He is very wise guy, he's been around and he brings a lot to the table, given his background. I think it did make sense for them given that they've got expanding footprint in North America with their investments to put it sort of a North American on -- executive who can oversee their interest here.

So I think we'll see the future of our relationship in a big way. We're not really focused on getting our games into Asia just yet. I feel like we've got a lot on our plate in North American and Western markets. We'll go after that, we'll make success there and then -- then we can always partner with Tencent about, taking our games to the East, when and if that makes sense.

Mike Hickey

Okay, good. That's fair. Thank you. Last question.

Nick Earl


Mike Hickey

Maybe I am the last analyst. So, one last…

Nick Earl

No, that's the way. Go ahead.

Mike Hickey

Eric, you may have talked on this in your presentation, I may have missed it, curious Q4 obviously has historically been a good quarter for driving in app -- ad money from in apps and I'm not sure, if you segmented what you generated from ads, from your apps in Q4? I was wondering, if that was material amount, really we have a fair amount of, sort of curious how do you think about segment as an opportunity for you guys in the future? Thanks.

Nick Earl

Yeah. Sure. So thanks for that question, Mike. Yeah. So, our earnings IR deck and the slide which we update every quarter. In this quarter, it shows our Q4 ad revenue total booking at 16% and this is little bit diluted for two reasons. First Crowdstar's in it for two months of quarter. And as we said in the last earnings call, they are historically in the lower threshold. This quarter they were at 9% of their revenue with advertising. The Glu standalone was 18% but given that Apple had an extra month of revenue, had we not had an extra month of revenue which was [indiscernible] other with advertising, Glu would have been 20%, Crowdstar would have been 9%, we would have been about 17% to 17.5%.

So we are right back, Glu standalone is right at our historical high of roughly 20% without the extra month of revenue. Crowdstar is just now starting to take some of the lessons that Glu has -- excel that in terms of advertising, when you still start seeing in both Covet and Design Home, additional advertising revenue within there and we'll be increasing that over time as we said we would do in the last earnings call.

And then I think your second question was about mile -- I wasn't really exactly sure about what the question was about mile?

Mike Hickey

I was just sort of reflecting on ad money per mile that's all. Obviously, you still have a fairly significant player base, that can be appealing for advertisers that's all.

Nick Earl

Yeah. I -- that's very true and I think one of the items we talked about into my prepared remarks was QuizUp. QuizUp is a great asset purchased for a smaller dollar investment with a great 400,000 daily attributor base. It's already breakeven with all advertising revenue. I think this coupled with what we're doing with some of our other titles we should see an uptick in advertising revenue throughout the year. It may not be sequentially, linearly up into the right every quarter. But I would anticipate by year-end will be higher than we are today, for sure.

Mike Hickey

Okay. Thanks, guys.

Nick Earl

Thanks Mike.

Eric Ludwig

Thanks Mike.


At this time, I see no other questions in the queue. I'll turn it back to management for any closing remarks.

Nick Earl

Great, thank you. Thank you all for joining our earnings call. As mentioned last November I am deeply humbled by the opportunity that our investors and Board have afforded me. And I will be giving this my all, as we continue to transform and evolve the company. I very much look forward to updating you on our progress of creative leaders and thoughts on titles in future calls. Thanks everyone.


Ladies and gentlemen thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Everyone have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!